F–2 VII. STANDING COMMITTEES B. Finance and Asset Management Committee 2015 Audit Plans (KPMG & Peterson Sullivan) For information only. Attachments KPMG – University of Washington 2015 Audit Plan Peterson Sullivan LLP – University of Washington 2015 Audit Plan F–2/205-15 5/14/15 University of Washington Higher Education 2015 Audit Plan kpmg.com F–2.1/205-15 ATTACHMENT 1 5/14/15 Contents Page I. Executive Summary 2 II. Required Communications and Responsibilities 3-4 III. Financial Reporting Entity 5 IV. Scope of our Audits 6-7 V. KPMG LLP (KPMG) Team Overview 8 VI. KPMG Audit Process 9 VII. University of Washington Business and Financial Risks 10 VIII. Consideration of Fraud in the Audit 11 IX. Materiality 12 X. KPMG Audit Process – Procedures 13-16 XI. KPMG Independence Quality Controls 17 XII. New Accounting Pronouncements 18 XIII. Key GASB vs. FASB Differences 19 XIV. Tentative Timetable 20 Appendix © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent F–2.1/205-15 member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1 NDPPS 349203 5/14/15 I. Executive Summary Scope of our Audit We will audit the statements of net position of the University of Washington (the University) as of June 30, 2015, and the related statements of revenues, expenses, and changes in net position and cash flows for the year then ended. These financial statements are the responsibility of the University’s management. Additionally, we will report separately on our audits for the UW Medical Center, Intercollegiate Athletics, Commuter Services, Internal Lending Program, and Housing and Food Services. We also issue reports on many of the audits of component units, including the discretely presented component units of UW Medicine/Northwest and Valley Medical Center. See page 5 for a listing of those entities. Specialized Team We bring a specialized team to the audit that has significant experience working with other higher education entities and medical institutions in the Pacific Northwest. Furthermore, we have a very knowledgeable national network that we can draw upon as needed in order to bring the best client service to the University. Risk Based Approach We utilize a risk based approach to plan and perform our audit. Our time and effort is spent on the areas that we see as most critical to the University. We are in constant communication with the University throughout the year to stay abreast of new and emerging issues or risks that the University may be dealing with in order to update our audit plan accordingly. Consolidation of Entities We audit a number of entities of the University on a stand alone basis that consolidate into the University’s financial report. Many of these entities have separate governing bodies and reporting structures that KPMG reports through as part of our audit process, in addition to the communications that are made as part of the University’s financial report communications process. This ensures that individuals at the appropriate level of management at these entities are kept aware of any issues and audit findings. In addition, we audit a number of entities that do not get consolidated into the University’s financial report. Each of these entities has it’s own separate governing bodies and reporting structures as well that KPMG reports through as part of our audit process. Coordination with Other Auditors We will coordinate and rely on audit testwork performed by the following other auditors: Peterson Sullivan, the Washington State Auditor’s Office, Shallo, Galluscio, Bianchi and Fucito, Clifton Larson Allen (in relation to the audit of GASB 68 information provided by DRS) and the University’s Internal Audit Department as considered necessary. This coordinated approach allows us to reduce duplicative testwork during the audit of the University and increase overall efficiency. Tentative Timetables Our timetable is expected to be accelerated to that of the previous year by one week. We will coordinate with the Office of Financial Management and Internal Audit for a more detailed schedule of events and prepare an outline of specific data requirements, timelines, and individuals responsible. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent F–2.1/205-15 member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2 NDPPS 349203 5/14/15 II. Required Communications Generally accepted auditing standards require we cover these topics in planning and completion of our audit process with the Audit Committee: The Auditor’s Responsibility under Auditing Standards Generally Accepted in the United States of America Significant Accounting Policies and Unusual Transactions Management Judgments and Accounting Estimates Significant Audit Adjustments/Passed Audit Differences Other Information in Documents Containing Audited Financial Statements Issues Discussed Prior to Retention Disagreements with Management Consultations with Other Accountants Difficulties Encountered in Performing the Audit Deficiencies in Internal Control Auditor Independence Illegal acts, fraud or noncompliance with laws and regulations © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent F–2.1/205-15 member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3 NDPPS 349203 5/14/15 II. Responsibilities of Management and KPMG Responsibilities of Management Adopting sound accounting policies Fairly presenting the financial statements in conformity with generally accepted accounting principles Establishing and maintaining effective internal control over financial reporting (ICFR) Identifying and confirming that the University complies with laws and regulations applicable to its activities Making all financial records and related information available to the auditor Providing the auditor with a letter confirming certain representations made during the audit that includes, but are not limited to, management’s: – Disclosure of all significant deficiencies, including material weaknesses, in the design or operation of ICFR that could adversely affect the University’s ability to initiate, authorize, record, process, or report financial data – Acknowledgement of their responsibility for the design and implementation of programs and controls to prevent, deter, and detect fraud The Board is responsible for: Oversight of the financial reporting process and oversight of ICFR Management and the Board are responsible for: Establishing and maintaining internal controls to prevent, deter, and detect fraud Setting the proper tone and creating and maintaining a culture of honesty and high ethical standards The audit of the financial statements does not relieve management or the Audit Committee of their responsibilities. Responsibilities of KPMG Forming and expressing an opinion about whether the financial statements that have been prepared by management with the oversight of the Board are presented fairly, in all material respects, in conformity with generally accepted accounting principles Evaluating whether the University’s controls sufficiently address: – Identified risks of material misstatement due to fraud – The risk of management override of other controls Communicating to the Board in writing all significant deficiencies and material weaknesses in internal control identified in the audit and reporting to management deficiencies that, in our professional judgment, are of sufficient importance to merit management’s attention Conducting our audit in accordance with professional standards Complying with the rules and regulations of the Code of Professional Conduct of the AICPA, and the ethical standards of relevant CPA societies and relevant state boards of accountancy Planning and performing our audit with an attitude of professional skepticism Communicating all required information, including significant matters, to management and the Board KPMG Quality Control Procedures Annual concurring partner review process Internal Quality Performance Review Internal in-depth reviews every five years associated with debt financings PCAOB/External Peer Review – PriceWaterhouse © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent F–2.1/205-15 member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 NDPPS 349203 5/14/15 III. Financial Reporting Entity The following illustration depicts the entities included in the University of Washington Annual Report. University of Washington Financial Report Financial Statements Entities 2014 Assets and Deferred Outflows of Resources University of Washington Research, Teaching, and Public Service Activities (Main Campus)* UW Medical Center* Commuter Services* Intercollegiate Athletics* Internal Lending Program* $9,339 Airlift Northwest+ Housing and Food Services* Metropolitan Tract $81 $168 Wholly Owned Insurance Company Portage Bay Insurance* $325 $865 Affiliated Organizations – Medical entities University of Washington Physicians* University of Washington Neighborhood Clinics* Affiliated Organizations – Real Estate Properties Washington Biomedical Research Properties I Organizations Not included in Washington